This paper discusses the relationship between interest rate and inflation rate on one part and the house price relative to chonsei price (up-front lump-sum deposit from the tenant to the owner for the use of the property with no additional requirement for periodic rent payments) on the other. The key point of the paper is that the relative price of sales to chonsei depends on the ratio of inflation to real interest rate, and thus even when the monetary authority maintains a pre-announced target level of inflation rate, the relative price of sales to chonsei rises if the real interest rate is lowered. This finding seems to help understand the recent hikes of the house prices despite the stabilizing chonsei prices. Recognizing this relationship, it may be sensible to lower the target inflation rate in an economy where real interest rates permanently decline, if the society wishes to reduce its adverse effect on the wealth distribution between house owners and chonsei tenants.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11054.
Length: Date of creation: Jan 2005 Date of revision: Handle: RePEc:nbr:nberwo:11054
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Find related papers by JEL classification: R2 - Urban, Rural, and Regional Economics - - Household Analysis E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Dongchul Cho & Youngsun Koh, 1999.
"Liberalization of Capital Flows in Korea: Big Bang or Gradualism?,"
NBER Chapters,
in: Changes in Exchange Rates in Rapidly Development Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 285-310
National Bureau of Economic Research, Inc.
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